Qatar DFC shortage a boon for Asian condensate suppliers: traders

The impending startup of Qatar Petroleum’s new condensate-fed refinery has led to a sharp reduction of deodorized field condensate supply in the spot market, providing a much-needed boost to Asian ultra-light crude suppliers looking to clear October cargoes, market participants said Tuesday.

Lofty premiums paid for Qatar’s Low Sulfur Condensate for loading in October caught some Asian end-users by surprise and the price outlook for both Asia and Middle East ultra-light crudes took a positive turn due to the shortage of DFC cargoes.

Latest market talk in Asia indicated that Qatar International Petroleum Marketing Co., or Tasweeq, has recently sold two 500,000-barrel cargoes of LSC in pre-tender deals to South Korean end-users at premiums in the range of $1.50-$1.70/b to Platts front-month Dubai crude oil assessments, sharply higher than the $1.10/b premium received for September-loading LSC last month.

S&P Global Platts assessed LSC at a premium of $1.40/b Tuesday, the highest level since posting a $1.45/b premium on June 29.

With Tasweeq’s sell tender closing late afternoon is Asia Tuesday, trade sources said very little was heard on any pre-tender deals for DFC for loading in October, a possible indication that the vast majority of October DFC supply could have been set aside for the new Laffan Refinery 2.

“There’s no DFC being offered, but I expect to see one done [via tender],” said a Singapore-based condensate trader.

Qatar Petroleum in its latest annual report said Laffan Refinery 2, or LR2, was expected to be fully operational in the third quarter. Industry sources this week expected this to occur in late September.

The new facility will be able to process an additional 146,000 b/d, raising Laffan Refinery’s total processing capacity to 292,000 b/d, the state-run petroleum company said in the annual report.

Regional ultra-light crude traders said the number of DFC cargoes in the spot market could drop to as low as one or two per month if the LR2 condensate refinery runs at 50% or more of its capacity early in the startup phase.

“We are witnessing a severe lack of DFC supply in the market this month. Normally Tasweeq and some term lifters would sell five cargoes at least [in pre-tender deals] but there’s hardly any available this time around,” said a North Asian crude trader.

“When you assume LR2 running at maximum capacity of around 146,000 b/d, that would roughly equate to about 9 DFC cargoes the market impact would be quite substantial if you consider this,” the North Asian trader added.

Construction of LR2 began in April 2014, and the shareholders in the second refinery are QP (84%), Total (10%), Idemitsu (2%), Cosmo (2%), Mitsui (1%) and Marubeni (1%).

The refinery, with a nameplate capacity of 146,000 b/d, will have the capacity to produce 60,000 b/d of naphtha, 53,000 b/d of jet fuel, 24,000 b/d of gasoil and 9,000 b/d of LPG.

CONDENSATE PRICE DIFFERENTIALS SEEN SUPPORTED

Market participants said despite the tepid light distillate product margins of late, suppliers of both sweet and sour condensates around the region would likely adjust their selling ideas higher in a bid to take full advantage of the sharp decline in DFC supply.

“Many had initially anticipated another month of bear market due to the sliding naphtha cracks and the unsold August and September overhang but I guess the tide could turn,” said another Singapore-based crude trader. Last market talk in Australia indicated that Woodside Petroleum could have sold a 650,000-barrel cargo of North West Shelf condensate for loading over October 11-15 to a South Korean buyer at a discount of around $2/b to Platts Dated Brent crude assessments.

It was said to have sold a NWS cargo for loading in September 2-6 at a discount of around $2.30/b in the previous trading cycle.

“I think the splitters might pay more if they are really worried about the DFC supply,” said another North Asian crude trader.

However, many traders continued to adopt a cautious stance as tepid naphtha crack values and ample condensate supply from Southeast Asia and Oceania could put a cap on any upside in cash differentials for regional ultra-light crudes.

Latest Platts data showed the second-month naphtha to Dubai swap crack fell below the minus $4/b mark to minus $4.07/b Monday, the lowest level in more than 15 months. The spread was last wider on May 8, 2015, at minus $4.20/b.

The crack value has averaged minus $2.37/b to date this month, compared with minus $1.60/b in July and minus $0.77/b in June.

The last time the average monthly naphtha crack was lower was in July 2015 at minus $2.75/b.